Today's KCM Blog Post: "Who Cares What The Purchase Price Is...Will It Appraise?"
Thursday, May 13, 2010
The classic definition of what a home was worth has always been “what a reasonable buyer will pay a reasonable seller.” That’s because MOST real estate transactions have historically involved reasonable people– people not under duress. But today, with the enormous number of foreclosures, bank-owned property, strategic defaults, and short sales, all the reasonableness has vanished and duress reigns supreme.
Today, appraisers are faced with some dilemmas:
- If a reasonable buyer and seller come to terms on the price of a home, but at the same time there are other available properties at lower prices, what’s the home really worth?
- If a bank lists a property they own (via a foreclosure) at 10% below market value to get a quick sale, is that a reasonable representation of a neighborhood’s true value?
- With all the short sales starting to move through the system now, does the fact that the seller isn’t getting any money from the sale eliminate them as a reasonable party to determine a legitimate value?
- How about the actual condition of the housing inventory? How does that get reflected in the appraised value?
And at least another dozen quandaries the market has created…
